Market Overview

Foundation Building Materials, Inc. Announces Second Quarter 2018 Results

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2018 Second Quarter Highlights

  • Record net sales of $605.0 million, an increase of 14.3% compared to
    the prior year period
  • Base business net sales of $546.2 million, an increase of 9.5%
    compared to the prior year period
  • Net income of $5.4 million, an increase of $4.1 million compared to
    the prior year period; earnings per share of $0.13
  • Adjusted net income(1) of $7.6 million and adjusted
    earnings per share(1) of $0.18
  • Adjusted EBITDA(1) of $46.3 million, an increase of 14.8%
    compared to the prior year period; adjusted EBITDA margin(1)
    of 7.7%
  • Opened four greenfield branches

Foundation Building Materials, Inc. (the "Company") (NYSE:FBM), one of
the largest specialty building product distributors of wallboard,
suspended ceiling systems and mechanical insulation in North America,
today reported second quarter 2018 financial results.

"We delivered strong second quarter results with double-digit top line
and robust bottom line growth," said Ruben Mendoza, President and CEO.
"Both our Specialty Building Products and Mechanical Insulation segments
posted record results reflecting solid demand in our business." Mendoza
continued, "As we enter the second half of 2018, our business remains
strong, and we see solid activity in each of our end markets."

2018 Second Quarter Consolidated Results

Consolidated net sales for the three months ended June 30, 2018, were
$605.0 million compared to $529.2 million for the three months ended
June 30, 2017, representing an increase of $75.7 million, or 14.3%. Base
business net sales increased $47.5 million, or 9.5%, to $546.2 million
for the three months ended June 30, 2018, compared to the three months
ended June 30, 2017. Net sales from acquired branches and existing
branches that were strategically combined contributed $28.2 million to
the increase in consolidated net sales.

Consolidated gross profit for the three months ended June 30, 2018, was
$169.1 million compared to $149.5 million for the three months ended
June 30, 2017, representing an increase of $19.6 million, or 13.1%.
Consolidated gross margin for the three months ended June 30, 2018, was
28.0% compared to 28.3% for the three months ended June 30, 2017. The
decrease in gross margin was primarily due to a change in product mix
with a higher contribution from lower gross margin products such as
suspended ceilings systems and mechanical insulation on a percentage of
net sales basis.

Selling, general and administrative, or SG&A, expenses for the three
months ended June 30, 2018, were $125.8 million compared to $113.6
million for the three months ended June 30, 2017, representing an
increase of $12.2 million, or 10.7%. As a percentage of net sales, SG&A
expenses were 20.8% for the three months ended June 30, 2018, compared
to 21.5% for the three months ended June 30, 2017. Excluding
non-recurring adjustments of $3.0 million and $3.6 million for the three
months ended June 30, 2018 and 2017, respectively, SG&A expenses as a
percentage of net sales for the three months ended June 30, 2018 was
20.3% compared to 20.8% for the three months ended June 30, 2017. The
decrease in SG&A expenses as a percentage of net sales was due to our
continued focus on operating efficiencies and cost reduction
initiatives, as well as our increase in net sales.

Net income for the three months ended June 30, 2018, was $5.4 million,
or $0.13 per share, an increase of $4.1 million compared to net income
of $1.3 million, or $0.03 per share, for the three months ended June 30,
2017. Adjusted net income(1) for the three months ended June
30, 2018, was $7.6 million, or $0.18 per share, an increase of $3.6
million compared to an adjusted net income(1) of $4.0
million, or $0.09 per share, for the three months ended June 30, 2017.

Adjusted EBITDA(1) was $46.3 million and Adjusted EBITDA
margin(1) was 7.7% for the three months ended June 30, 2018.

2018 Second Quarter Segment Results

Specialty Building Products ("SBP"). SBP net sales for the three
months ended June 30, 2018, were $522.2 million compared to $460.1
million for the three months ended June 30, 2017, representing an
increase of $62.1 million, or 13.5%. Net sales from base business
contributed $34.4 million of the net increase which was driven by strong
commercial activity, price increases and product expansion into new
geographic markets. Net sales from acquired branches and existing
branches that were strategically combined with acquired branches
contributed $27.7 million of the increase.

SBP gross profit for the three months ended June 30, 2018, was $146.3
million compared to $130.7 million for the three months ended June 30,
2017, representing an increase of $15.5 million, or 11.9%. SBP gross
margin for the three months ended June 30, 2018, was 28.0% compared to
28.4% for the three months ended June 30, 2017. The decrease in gross
margin was primarily due to a change in product mix with a higher
contribution from lower gross margin products such as suspended ceiling
systems and metal framing on a percentage of net sales basis.

Mechanical Insulation ("MI"). MI net sales for the three months
ended June 30, 2018, were $82.8 million compared to $69.1 million for
the three months ended June 30, 2017, representing an increase of $13.6
million, or 19.7%. Net sales from base business contributed $13.1
million of the increase, which was primarily due to higher net sales
from our industrial end markets.

MI gross profit for the three months ended June 30, 2018, was $22.8
million compared to $18.8 million for the three months ended June 30,
2017, representing an increase of $4.0 million, or 21.4%. MI gross
margin for the three months ended June 30, 2018, was 27.6% compared to
27.2% for the three months ended June 30, 2017. The increase in gross
margin was primarily due to a change in product mix with an increased
contribution from higher gross margin products on a percentage of net
sales basis.

2018 Year-to-Date Consolidated Results

Consolidated net sales for the six months ended June 30, 2018, were
$1,141.3 million compared to $1,008.7 million for the six months ended
June 30, 2017, representing an increase of $132.6 million, or 13.1%.
Base business net sales increased $70.0 million, or 7.3%, to $1,031.4
million, for the six months ended June 30, 2018, compared to the six
months ended June 30, 2017. Net sales from acquired branches and
existing branches that were strategically combined contributed $62.6
million to the increase in consolidated net sales.

Consolidated gross profit for the six months ended June 30, 2018, was
$323.5 million compared to $289.4 million for the six months ended June
30, 2017, representing an increase of $34.1 million, or 11.8%.
Consolidated gross margin for the six months ended June 30, 2018, was
28.3% compared to 28.7% for the six months ended June 30, 2017. The
decrease in gross margin was primarily due to a change in product mix
with a higher contribution from lower gross margin products such as
suspended ceilings systems and mechanical insulation on a percentage of
net sales basis.

SG&A expenses for the six months ended June 30, 2018, were $247.2
million compared to $226.7 million for the six months ended June 30,
2017, representing an increase of $20.5 million, or 9.1%. As a
percentage of net sales, SG&A expenses were 21.7% for the six months
ended June 30, 2018, compared to 22.5% for the six months ended June 30,
2017. Excluding non-recurring adjustments of $4.6 million and $9.3
million for the three months ended June 30, 2018 and 2017, respectively,
SG&A expenses as a percentage of net sales for the six months ended June
30, 2018, was 21.3% compared to 21.6% for the six months ended June 30,
2017. The decrease in SG&A expenses as a percentage of net sales was due
to our continued focus on operating efficiencies and cost reduction
initiatives, as well as our increase in net sales.

Net income for the six months ended June 30, 2018, was $4.3 million, or
$0.10 per share, a decrease of $0.8 million compared to net income of
$5.2 million, or $0.13 per share, for the six months ended June 30,
2017. Adjusted net income(1) for the six months ended June
30, 2018, was $8.0 million, or $0.19 per share, an increase of $4.8
million compared to an adjusted net income of $3.1 million, or $0.08 per
share, for the six months ended June 30, 2017.

Adjusted EBITDA(1) was $81.3 million and Adjusted EBITDA
margin(1) was 7.1% for the six months ended June 30, 2018.

2018 Year-to-Date Segment Results

Specialty Building Products. SBP net sales for the six months
ended June 30, 2018, were $985.9 million compared to $878.5 million for
the six months ended June 30, 2017, representing an increase of $107.3
million, or 12.2%. Net sales from acquired branches and existing
branches that were strategically combined with acquired branches
contributed $59.7 million of the increase. SBP base business net sales
also increased by $47.6 million, which was driven by strong commercial
activity, price increases and product expansion into new geographic
markets.

SBP gross profit for the six months ended June 30, 2018, was $280.7
million compared to $253.2 million for the six months ended June 30,
2017, representing an increase of $27.5 million, or 10.9%. SBP gross
profit increased as a result of higher sales volume and contributions
from acquired and combined branches. SBP gross margin for the six months
ended June 30, 2018, was 28.5% compared to 28.8% for the six months
ended June 30, 2017. The decrease in gross margin was primarily due to a
change in product mix with a higher contribution from lower gross margin
products such as suspended ceiling systems and metal framing on a
percentage of net sales basis.

Mechanical Insulation. MI net sales for the six months ended June
30, 2018, were $155.4 million compared to $130.1 million for the six
months ended June 30, 2017, representing an increase of $25.3 million,
or 19.4%. Net sales from base business contributed $22.4 million of the
increase, which was primarily due to higher net sales from our
industrial end markets. Net sales from acquired branches and existing
branches that were strategically combined with acquired branches
contributed $2.9 million of the increase.

MI gross profit for the six months ended June 30, 2018, was $42.8
million compared to $36.3 million for the six months ended June 30,
2017, representing an increase of $6.5 million, or 18.0%. MI gross
profit increased due to higher net sales from our base business. MI
gross margin for the six months ended June 30, 2018, was 27.6% compared
to 27.9% for the six months ended June 30, 2017. This decrease was
primarily due to a higher contribution from large industrial projects
for the six months ended June 30, 2018, which generally have lower
margins relative to the overall MI segment.

Acquisitions and Greenfield Branches

On August 1, 2018, the Company completed the acquisition of Ciesco, Inc.
("Ciesco"), adding six additional SBP branches to the Company's
Northeastern and Mid-Atlantic markets. For the remainder of 2018, Ciesco
is expected to contribute $24.0 million to $27.0 million to net sales.
Through August 9, 2018, the Company has completed three acquisitions
totaling 13 branches with combined annualized net sales in excess of
$100.0 million. The Company will continue to supplement organic growth
with strategic acquisitions.

As of June 30, 2018, the Company has opened five greenfield branches and
expects to open one to two more branches by the end of 2018, for a total
of six to seven branches. These greenfield branches are projected to
yield high returns on invested capital within the first few years of
startup. They also serve to further leverage our national scale,
increase our market share, and support our organic growth.

Expected Debt Refinancing

On July 30, 2018, the Company submitted a conditional notice of
redemption to the trustee and the holders of its senior secured notes,
or Notes, seeking to redeem all of the outstanding Notes on August 15,
2018, conditioned on the prior completion of a new $450.0 million term
loan (the "Term Loan") and ABL Credit Agreement (the "2018 ABL," and,
together with the Term Loan, the "2018 Credit Agreements"). The Term
Loan was priced on May 14, 2018, with a spread of LIBOR plus 325 basis
points and will be issued at an original issue discount of 99.75. The
2018 ABL also includes an increase in commitments to $400.0 million from
$300.0 million.

Due to the redemption of the Notes, the Company expects to expense
approximately $35.8 million of non-cash amortization related to deferred
financing costs and a $23.7 million prepayment premium during the three
months ending September 30, 2018. Upon completion of the refinancing,
the Company expects to realize annual cash interest savings of $12.0
million to $15.0 million. As the Company continues to optimize its
capital structure and operating efficiencies, the Company expects its
generation of cash flow to improve, which will allow the Company to
further reduce its leverage over the next couple of years.

Second Quarter Earnings Release and Conference
Call

In conjunction with this release, the Company will host a conference
call today, Thursday, August 9, 2018, at 9:00 AM Eastern Time. Ruben
Mendoza, President and Chief Executive Officer, John Gorey, Chief
Financial Officer, and John Moten, Vice President Investor Relations,
will host the call.

The call can be accessed three ways:

  • At the FBM website: www.fbmsales.com
    in the Investors section of the Company's website;
  • By telephone: For both listen only participants and those who wish to
    take part in the question and answer portion of the call, the
    telephone dial-in number in the U.S. is (877) 407-9039. For
    participation outside the U.S., the dial-in number is (201) 689-8470;
    and
  • Audio Replay: A replay of the call will be available beginning at
    12:00 PM Eastern Time on Thursday, August 9, 2018, and ending 11:59 PM
    Eastern Time August 16, 2018. Dial-in numbers for U.S. based
    participants are (844) 512-2921. Participants outside the U.S. should
    use the replay dial-in number of (412) 317-6671. All callers will be
    required to provide the Conference ID of 13681777.

About Foundation Building Materials

Foundation Building Materials, Inc. is a specialty building products
distributor of wallboard, suspended ceiling systems, and mechanical
insulation throughout North America. Based in Tustin, California, the
Company employs more than 3,700 people and operates more than 220
branches across the U.S. and Canada.

Forward-Looking Statements

This press release contains "forward-looking statements" as that term is
defined in the Private Securities Litigation Reform Act of 1995.
Forward-looking statements include, without limitation, any statement
that may predict, forecast, indicate or imply future results,
performance or achievements, and may contain words such as "believe,"
"anticipate," "expect," "estimate," "intend," "project," "plan," or
words or phrases with similar meaning. Forward-looking statements should
not be read as a guarantee of future performance or results, and will
not necessarily be accurate indications of the times at, or by, which
such performance or results will be achieved. Forward-looking statements
are based on current expectations, forecasts and assumptions that
involve risks and uncertainties, including, but not limited to,
economic, competitive, governmental and technological factors outside of
our control, that may cause our business, strategy or actual results to
differ materially from the forward-looking statements. We do not intend,
and undertake no obligation, to update any forward-looking statements,
whether as a result of new information, future events or otherwise,
except as may be required by applicable law. Investors are referred to
our filings with the Securities and Exchange Commission, including our
Annual Reports on Form 10-K and our Quarterly Reports on Form 10-Q for
additional information regarding the risks and uncertainties that may
cause actual results to differ materially from those expressed in any
forward-looking statement.

 (1) Adjusted EBITDA, Adjusted EBITDA margin,
Adjusted net income and Adjusted earnings per share are non-GAAP
measures.  See the supplementary schedules at the end of this press
release for a discussion of how we define and calculate these measures,
why we believe they are important and a reconciliation thereof to the
most directly comparable GAAP measures.  Adjusted EBITDA margin
represents Adjusted EBITDA divided by net sales.

- Financial Tables Follow -

       

FOUNDATION BUILDING MATERIALS, INC.

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(in thousands, except share and per share data)

 
Three Months Ended June 30, Six Months Ended June 30,
2018     2017 2018     2017
Net sales $ 604,973 $ 529,230 $ 1,141,270 $ 1,008,687
Cost of goods sold 435,876   379,698   817,733   719,244  
Gross profit 169,097 149,532 323,537 289,443
Operating expenses:
Selling, general and administrative 125,785 113,602 247,212 226,664
Depreciation and amortization 20,341   19,027   40,227   37,423  
Total operating expenses 146,126   132,629   287,439   264,087  
Income from operations 22,971 16,903 36,098 25,356
Interest expense (15,345 ) (14,876 ) (30,477 ) (30,125 )
Other income, net 57   95   124   13,384  
Income before income taxes 7,683 2,122 5,745 8,615
Income tax expense 2,283   862   1,398   3,426  
Net income $ 5,400   $ 1,260   $ 4,347   $ 5,189  
 
Earnings per share data:
Basic $ 0.13 $ 0.03 $ 0.10 $ 0.13
Diluted $ 0.13 $ 0.03 $ 0.10 $ 0.13
Weighted average shares outstanding:
Basic 42,893,498 42,865,407 42,886,867 40,084,730
Diluted 42,910,017 42,879,319 42,903,788 40,084,940
 
         

FOUNDATION BUILDING MATERIALS, INC.

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands, except share data)

 
June 30, 2018 December 31, 2017
Assets
Current assets:
Cash and cash equivalents $ 7,083 $ 12,101
Accounts receivable—net of allowance for doubtful accounts of $4,092
and $4,651, respectively
343,382 280,023
Other receivables 49,286 59,462
Inventories 211,997 184,436
Prepaid expenses and other current assets 13,807   12,636
Total current assets 625,555 548,658
Property and equipment, net 156,000 151,408
Intangible assets, net 169,738 189,770
Goodwill 465,762 458,737
Other assets 5,790   5,604
Total assets $ 1,422,845   $ 1,354,177
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 166,910 $ 156,345
Accrued payroll and employee benefits 24,717 21,158
Accrued taxes 11,627 7,790
Tax receivable agreement 15,892 15,892
Other current liabilities 40,021   41,093
Total current liabilities 259,167 242,278
Asset-based revolving credit facility 94,075 47,486
Long-term portion of notes payable, net 539,168 534,379
Tax receivable agreement 119,912 119,912
Deferred income taxes, net 18,198 17,819
Other liabilities 10,195   13,639
Total liabilities 1,040,715 975,513
Commitments and contingencies
 
Stockholders' equity:
Preferred stock, $0.001 par value, authorized 10,000,000 shares; 0
shares issued
Common stock, $0.001 par value, authorized 190,000,000 shares;
42,893,982 and 42,865,407 shares issued, respectively
13 13
Additional paid-in capital 330,995 330,113
Retained earnings 50,711 46,184
Accumulated other comprehensive income 411   2,354
Total stockholders' equity 382,130   378,664
Total liabilities and stockholders' equity $ 1,422,845   $ 1,354,177
 
   

FOUNDATION BUILDING MATERIALS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

 
Six Months Ended June 30,
2018     2017
Cash flows from operating activities:
Net income $ 4,347 $ 5,189
Adjustments to reconcile net income to net cash (used in) provided
by operating activities:
Depreciation 16,329 14,723
Amortization of intangible assets 23,898 22,700
Amortization of debt issuance costs and debt discount 5,298 4,844
Inventory fair value purchase accounting adjustment 407 664
Provision for doubtful accounts 1,050 766
Stock-based compensation 927 1,765
Unrealized gain on derivative instruments, net (135 ) (13,155 )
Loss on disposal of property and equipment 309 242
Deferred income taxes (421 ) 3,356
Change in assets and liabilities, net of effects of acquisitions:
Accounts receivable (63,199 ) (32,706 )
Other receivables 9,918 10,638
Inventories (25,680 ) (2,807 )
Prepaid expenses and other current assets (1,155 ) 561
Other assets 382 393
Accounts payable 11,349 17,875
Accrued payroll and employee benefits 3,674 (4,433 )
Accrued taxes 3,855 (1,474 )
Other liabilities (491 ) (7,258 )
Net cash (used in) provided by operating activities (9,338 ) 21,883
Cash flows from investing activities:
Purchases of property and equipment (20,463 ) (17,525 )
Payment of net working capital adjustments (40 ) (405 )
Proceeds from net working capital adjustments 336 8,554
Proceeds from the disposal of fixed assets 577 429
Acquisitions, net of cash acquired (21,220 ) (52,951 )
Net cash used in investing activities (40,810 ) (61,898 )
Cash flows from financing activities:
Proceeds from asset-based revolving credit facility 266,198 280,995
Repayments of asset-based revolving credit facility (219,350 ) (415,497 )
Tax withholding payment related to net settlement of equity awards (45 )
Principal repayment of capital lease obligations (1,489 ) (1,395 )
Issuance of common stock 163,952
Capital contributions   2,997  
Net cash provided by financing activities 45,314 31,052
Effect of exchange rate changes on cash (184 ) 357  
Net decrease in cash (5,018 ) (8,606 )
Cash and cash equivalents at beginning of period 12,101 28,552
Cash and cash equivalents at end of period $ 7,083   $ 19,946  
 
Supplemental disclosures of cash flow information:
Cash paid during the period for income taxes $ 1,423 $ 143
Cash paid during the period for interest $

25,226

$ 25,699
Supplemental disclosures of non-cash investing and financing
activities:
Change in fair value of derivative, net of tax $ 2,259 $ 1,400
Assets acquired under capital lease $ $ 658
Goodwill adjustment for purchase price allocation $ 202 $ 1,724
Tax receivable agreement $ $ 203,837
Property and equipment included in accounts payable $ $ 198
 
       

FOUNDATION BUILDING MATERIALS, INC.

NET SALES BY SEGMENT AND PRODUCT LINE AND SEGMENT GROSS PROFIT
AND GROSS MARGIN

(UNAUDITED)

 
Three Months Ended June 30, Change
(dollars in thousands) 2018       2017   $       %  
SBP Segment        
Wallboard(1) $ 198,598 38.0 % $ 180,955 39.3 % $ 17,643 9.7 %
Suspended ceiling systems 97,755 18.7 % 83,271 18.1 % 14,484 17.4 %
Metal framing 91,476 17.5 % 72,404 15.7 % 19,072 26.3 %
Complementary and other products 134,390       25.8 % 123,456       26.9 % 10,934   8.9 %
Total SBP net sales $ 522,219       100.0 % $ 460,086       100.0 % $ 62,133   13.5 %
 
MI Segment
Total MI net sales(2) $ 82,754       100.0 % $ 69,144       100.0 % $ 13,610   19.7 %
Total net sales $ 604,973   $ 529,230   $ 75,743   14.3 %
 
Gross profit - SBP $ 146,267 $ 130,729 $ 15,538 11.9 %
Gross profit - MI 22,830   18,803   4,027   21.4 %
Total gross profit $ 169,097   $ 149,532   $ 19,565   13.1 %
 
Gross margin - SBP 28.0 % 28.4 % (0.4 )%
Gross margin - MI 27.6 % 27.2 % 0.4 %
Total gross margin 28.0 % 28.3 % (0.3 )%
(1) For the three months ended June 30, 2017, wallboard
accessories have been reclassified from "Wallboard" to
"Complementary and other products" to conform to the current year
presentation.
(2) MI contains sales from Commercial and industrial
insulation and Non-insulation products.
 
       

FOUNDATION BUILDING MATERIALS, INC.

NET SALES BY SEGMENT AND PRODUCT LINE AND SEGMENT GROSS PROFIT
AND GROSS MARGIN

(UNAUDITED)

 
Six Months Ended June 30, Change
(dollars in thousands) 2018       2017   $       %  
SBP Segment        
Wallboard(1) $ 379,251 38.5 % $ 349,195 39.7 % $ 30,056 8.6 %
Suspended ceiling systems 183,933 18.7 % 155,988 17.8 % 27,945 17.9 %
Metal framing 165,443 16.8 % 141,065 16.1 % 24,378 17.3 %
Complementary and other products 257,252       26.0 % 232,301       26.4 % 24,951   10.7 %
Total SBP net sales $ 985,879       100.0 % $ 878,549       100.0 % $ 107,330   12.2 %
 
MI Segment
Total MI net sales(2) $ 155,391       100.0 % $ 130,138       100.0 % $ 25,253   19.4 %
Total net sales $ 1,141,270   $ 1,008,687   $ 132,583   13.1 %
 
Gross profit - SBP $ 280,704 $ 253,155 $ 27,549 10.9 %
Gross profit - MI 42,833   36,288   6,545   18.0 %
Total gross profit $ 323,537   $ 289,443   $ 34,094   11.8 %
 
Gross margin - SBP 28.5 % 28.8 % (0.3 )%
Gross margin - MI 27.6 % 27.9 % (0.3 )%
Total gross margin 28.3 % 28.7 % (0.4 )%
(1) For the six months ended June 30, 2017, wallboard
accessories have been reclassified from "Wallboard" to
"Complementary and other products" to conform to the current year
presentation.
(2) MI contains sales from Commercial and industrial
insulation and Non-insulation products.
 
       

FOUNDATION BUILDING MATERIALS, INC.

BASE BUSINESS AND ACQUIRED AND COMBINED NET SALES (UNAUDITED)

 
Three Months Ended June 30, Change
(dollars in thousands) 2018     2017 $     %
Base business(1) $ 546,206 $ 498,704 $ 47,502 9.5%
Acquired and combined(2) 58,767   30,526   28,241   92.5%
Net sales $ 604,973   $ 529,230   $ 75,743   14.3%
(1) Represents net sales from branches that were owned by
us since January 1, 2017 and branches that were opened by us during
such period.
(2) Represents branches acquired and existing branches
combined with acquired branches after January 1, 2017.
 
    Six Months Ended June 30,     Change
(dollars in thousands) 2018     2017 $     %
Base business(1) $ 1,031,447 $ 961,447 $ 70,000 7.3%
Acquired and combined(2) 109,823   47,240   62,583   132.5%
Net sales $ 1,141,270   $ 1,008,687   $ 132,583   13.1%
(1) Represents net sales from branches that were owned by
us since January 1, 2017 and branches that were opened by us during
such period.
(2) Represents branches acquired and existing branches
combined with acquired branches after January 1, 2017.
 
                           

FOUNDATION BUILDING MATERIALS, INC.

BASE BUSINESS AND ACQUIRED AND COMBINED NET SALES BY SEGMENT
AND PRODUCT

(UNAUDITED)

 

Three
Months
Ended June 30,
2017

Base
Business
Net Sales
Increase

Acquired
and
Combined
Net
Sales

Increase

Three
Months
Ended
June 30,
2018

Total Net
Sales %
Increase

Base
Business Net
Sales %
Increase(1)

Acquired
and
Combined
Net
Sales %

Increase(2)

(dollars in thousands)
Wallboard(3) $ 180,955 $ 6,710 $ 10,933 $ 198,598 9.7 % 4.0 % 81.9 %
Suspended ceiling systems 83,271 6,390 8,094 97,755 17.4 % 8.1 % 177.8 %
Metal framing 72,404 16,035 3,037 91,476 26.3 % 23.6 % 67.3 %
Complementary and other products 123,456   5,283   5,651   134,390   8.9 % 4.5 % 106.8 %
SBP net sales 460,086 34,418 27,715 522,219 13.5 % 8.0 % 100.1 %
MI net sales 69,144   13,084   526   82,754   19.7 % 19.7 % 18.6 %
Total net sales $ 529,230   $ 47,502   $ 28,241   $ 604,973   14.3 % 9.5 % 92.5 %
Average daily sales $ 8,269 $ 742 $ 442 $ 9,453 14.3 % 9.5 % 92.5 %
 
(1) Represents base business net sales increase as a
percentage of base business net sales for the three months ended
June 30, 2017.
(2) Represents acquired and combined net sales increase
as a percentage of acquired and combined net sales for the three
months ended June 30, 2017.
(3) For the three months ended June 30, 2017, wallboard
accessories have been reclassified from "Wallboard" to
"Complementary and other products" to conform to the current year
presentation.
 
   

Six Months
Ended June
30, 2017

   

Base
Business
Net Sales
Increase

   

Acquired
and
Combined
Net
Sales

Increase

   

Six Months
Ended
June 30,
2018

   

Total Net
Sales %
Increase

   

Base
Business Net
Sales %
Increase(1)

   

Acquired
and
Combined
Net
Sales %

Increase(2)

(dollars in thousands)
Wallboard(3) $ 349,195 $ 5,069 $ 24,987 $ 379,251 8.6 % 1.5 % 123.3 %
Suspended ceiling systems 155,988 13,108 14,837 183,933 17.9 % 8.9 % 181.6 %
Metal framing 141,065 16,812 7,566 165,443 17.3 % 12.5 % 113.5 %
Complementary and other products 232,301   12,656   12,295   257,252   10.7 % 5.6 % 151.7 %
SBP net sales 878,549 47,645 59,685 985,879 12.2 % 5.7 % 138.2 %
MI net sales 130,138   22,355   2,898   155,391   19.4 % 17.7 % 71.7 %
Total net sales $ 1,008,687   $ 70,000   $ 62,583   $ 1,141,270   13.1 % 7.3 % 132.5 %
Average daily sales $ 7,880 $ 547 $ 489 $ 8,916 13.1 % 7.3 % 132.5 %
(1) Represents base business net sales increase as a
percentage of base business net sales for the six months ended June
30, 2017.
(2) Represents acquired and combined net sales increase
as a percentage of acquired and combined net sales for the six
months ended June 30, 2017.
(3) For the six months ended June 30, 2017, wallboard
accessories have been reclassified from "Wallboard" to
"Complementary and other products" to conform to the current year
presentation.
 

Non-GAAP (Generally Accepted Accounting
Principles) Financial Measures

In addition to results under GAAP, this press release contains certain
non-GAAP financial measures, including EBITDA, Adjusted EBITDA, Adjusted
EBITDA margin, Adjusted net income and Adjusted earnings per share
("EPS"), which are provided as supplemental measures of financial
performance. These measures are not required by, or presented in
accordance with, GAAP. We calculate EBITDA as net income before interest
expense net, income tax expense, and depreciation and amortization. We
calculate Adjusted EBITDA as EBITDA before unrealized (gains) losses on
derivative financial instruments, IPO and public company readiness
expenses, stock-based compensation, and other non-recurring adjustments
such as non-cash purchase accounting effects, losses on the disposal of
property and equipment, transaction costs and management fees. We
calculate Adjusted EBITDA margin as Adjusted EBITDA divided by net
sales. We calculate Adjusted net income as net income before unrealized
(gains) losses on derivative financial instruments, IPO and public
company readiness expenses, stock-based compensation, and other
non-recurring adjustments such as non-cash purchase accounting
adjustments, losses on the disposal of property and equipment,
transaction costs, and management fees. We calculate Adjusted EPS as
Adjusted net income on a per weighted average share outstanding basis.

These non-GAAP financial measures are presented because they are
important metrics used by management as a means by which it assesses
financial performance. These measures may also be used by analysts,
investors and other interested parties to evaluate companies in our
industry. These measures, when used in conjunction with related GAAP
financial measures, provide investors with an additional financial
analytical framework that may be useful in assessing our financial
condition and results of operations.

These non-GAAP financial measures have certain limitations. These
measures should not be considered as alternatives to measures of
financial performance derived in accordance with GAAP. In addition,
these measures should not be construed as an inference that our future
results will be unaffected by unusual or non-recurring items.
Furthermore, these measures are not intended to be liquidity measures.
Other companies, including other companies in our industry, may not use
these measures or may calculate these measures differently than we do,
limiting their usefulness as comparative measures.

The following is a reconciliation of EBITDA and Adjusted EBITDA to the
nearest GAAP measure, net income (unaudited):

       
Three Months Ended June 30, Six Months Ended June 30,
2018       2017   2018       2017  
(in thousands)
Net income $ 5,400 $ 1,260 $ 4,347 $ 5,189
Interest expense, net 15,327 14,876 30,438 30,090
Income tax expense 2,283 862 1,398 3,426
Depreciation and amortization 20,341   19,027   40,227   37,423  
EBITDA 43,351 36,025 76,410 76,128
 
Unrealized (gains) losses on derivative financial instruments (60 ) 63 (134 ) (13,156 )
IPO and public company readiness expenses 1,434 89 4,409
Stock-based compensation 667 212 938 1,765
Non-cash purchase accounting effects(a) 593 407 664
Loss on disposal of property and equipment 296 20 309 172
Transaction costs(b) 2,057 1,979 3,275 2,571
Management fees(c)       353  
Adjusted EBITDA $ 46,311   $ 40,326   $ 81,294   $ 72,906  
Adjusted EBITDA margin(d) 7.7 % 7.6 % 7.1 % 7.2 %
 
(a)   Adjusts for the effect of the purchase accounting step-up in the
value of inventory to fair value recognized in cost of goods sold as
a result of acquisitions.
(b) Represents one-time costs related to our acquisitions, including
fees to financial advisors, accountants, attorneys, other
professionals and certain internal corporate development costs.
Certain amounts have been reclassified for the six months ended June
30, 2017 to conform our presentation of Adjusted EBITDA to the
current year presentation.
(c) Represents fees paid to our former private equity sponsor for
services provided pursuant to past management agreements. These fees
are no longer being incurred.
(d) Adjusted EBITDA margin represents Adjusted EBITDA divided by net
sales.
 

The following is a reconciliation of Adjusted net income to the nearest
GAAP measure, net income (unaudited):

       
Three Months Ended June 30, Six Months Ended June 30,
2018     2017 2018     2017
(in thousands, except share and per share data)
Net income $ 5,400 $ 1,260 $ 4,347 $ 5,189
Unrealized (gains) losses on derivative financial instruments (60 ) 63 (134 ) (13,156 )
IPO and public company readiness expenses 1,434 89 4,409
Stock-based compensation 667 212 938 1,765
Non-cash purchase accounting effects(a) 593 407 664
Loss on disposal of property and equipment 296 20 309 172
Transaction costs(b) 2,057 1,979 3,275 2,571
Management fees(c) 353
Tax effect of adjustments(d) (757 ) (1,570 ) (1,249 ) 1,176  
Adjusted net income $ 7,603 $ 3,991 $ 7,982 $ 3,143
 
Earnings per share (as reported):
Basic $ 0.13 $ 0.03 $ 0.10 $ 0.13
Diluted $ 0.13 $ 0.03 $ 0.10 $ 0.13
Adjusted earnings per share:
Basic $ 0.18 $ 0.09 $ 0.19 $ 0.08
Diluted $ 0.18 $ 0.09 $ 0.19 $ 0.08
 
Weighted average shares outstanding:
Basic 42,893,498 42,865,407 42,886,867 40,084,730
Diluted 42,910,017 42,879,319 42,903,788 40,084,940
 
(a)   Adjusts for the effect of the purchase accounting step-up in the
value of inventory to fair value recognized in cost of goods sold as
a result of acquisitions.
(b) Represents one-time costs related to our acquisitions, including
fees to financial advisors, accountants, attorneys, other
professionals and certain internal corporate development costs.
(c) Represents fees paid to former private equity sponsors for services
provided pursuant to past management agreements. These fees are no
longer being incurred.
(d) Represents the tax effect of the adjustments to reflect corporate
income taxes. The statutory tax rate for the three and six months
ended June 30, 2018, was 25.6%. The statutory tax rate for the three
and six months ended June 30, 2017, was 36.5%.
 

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